nsw contracts .25% penalty fee

[messmate]

noticed that contracts in nsw have a .25% penalty fee to the vendor if you cancel the contract during 5 business day cooloing off period. (works out at $250 per 100,000 of purchase price)
Where do you stand if you put clauses in the contract regarding pest and building inspection, finance etc and get the property off the market to undertake due diligance?
This will probably take longer than five days.............confused

 

[twobobsworth]

Additional conditions aren't the norm. You have 5 days to do your inspections & organise your finance.

You can try adding them but it will depend on the property.

 

[Player]

Additional conditions aren't the norm. You have 5 days to do your inspections & organise your finance.

You can try adding them but it will depend on the property.

I also found this to be the case. In VIC it's pretty common to stitch up the property for 10 or so business days to undertake your due diligence.

With a purchase I made is Sydney last year, I had to do most of my legal due diligence first before I even flew up to take it further.

On the flip-side the five day cooling off means the buyer has the upper hand for that period and can change their mind for any reason. Forfeiting the 0.25% deposit before the contract goes unconditional is a small price to pay. In NSW they apparenttly introduced this to reduce gazumping. Although I don't know if it can be eradicated all together......probably not a big issue in the current market.

You need to be organised well in advance with finance and the providers of your inspections required. Most building and pest can be done within 48 hours of placing your order......or at least that has been my experience in Melbourne (so far).

 

[Perp]

noticed that contracts in nsw have a .25% penalty fee to the vendor if you cancel the contract during 5 business day cooloing off period.

Additional conditions aren't the norm. You have 5 days to do your inspections & organise your finance.

I also found this to be the case. In VIC it's pretty common to stitch up the property for 10 or so business days to undertake your due diligence.

Wow! Don't know if it's a difference between practises in the states, but I've always had a good 21 days or more for my due diligence! Finance, in particular, I've found that the half-dozen lenders that I've dealt with simply can't get to approval in less than about 4 weeks even in the most straightforward of situations. I've settled about 10 properties (admittedly all in QLD) and never had an issue getting at least 21 days for the various conditions to be satisfied. I have had an offer accepted in Victoria with a 60 day due diligence clause, though that fell over for other reasons.

If you cancel the contract for cause, ie if something comes up in the building and pest that's a show-stopper, or you can't get finance etc, then you can pull out within the conditional period (after the cooling off has expired) with no penalty, though you must make sure that your conditions are written with the wriggle room that you require.

I don't consider the "cooling off" as being intended to cover cancelling for cause; I look at it as being purely to cover those situations where somebody simply changes their mind, in which case it's reasonable that they have to pay a penalty for inconveniencing the vendor.

 

[Player]

Hi Tracey,

I think each state has its own unique approach. I'd be happy to hear others' experiences who invest across states.

In Melbourne I've never had a problem tying up property, ditto in Qld. However the Sydney one was an eye-opener for me. Certainly i changed the settlement terms to suit myself, however with the strong initial yield (and they were under-let at the time), I followed my legal advisor and did much of the prelim title/contract checks before I even left Melb to inspect and subsequently transact. It was a four-pack and I wanted such in my portfolio at that the time

Interested to hear other's views and experiences especially on typical IP purchases, not necessarily tying up development sites with options etc, as they are another ball-game all together